“We are attempting to retest the lows made in the last couple of weeks, but a lot of gold is getting lost by the West in the process.
The thing for investors to focus on here is the battle between paper and physical. As I said, a lot of physical gold is getting lost in the prosecution of this down-move. The migration of physical gold from the West to the East is accelerating yet again. But there is a timeline on all of this. The real question is, when does that timeline expire? I believe we are getting very close, but we are clearly not quite there yet.
However, what has become increasingly apparent to our firm is the fact that all of the markets are controlled. News has come to light that the banks have been actively manipulating so many markets, and so it would be a shocker if gold wasn’t in that equation as well.
Central banks, by design, manipulate fixed income and currency markets. There is a knock-on effect on equities from those manipulations because it effects the so-called ‘risk-free’ rate of capital. But the linearity of trading, particularly in recent years, suggests outright manipulation in the equity markets as well.
Circling back to gold, as I mentioned, it would be a shocker if the gold market wasn’t being manipulated. So, we as a firm work under the assumption that gold is being manipulated. The interesting thing at this point is that the gold market is experiencing the kind of extremes that you rarely see in markets.
These extremes are indicated by the fact that physical demand continues to be incredibly robust, particularly in Russia and China, as well as other BRIC countries. This migration of gold, primarily from the central banks and sovereigns located in the West, to the East, that can’t go on indefinitely.”
Eric King: “What will be a sign that the West is losing control?”
Kaye: “It’s really hard to find definitive evidence that we’ve reached the 9th inning of the end game -- it could still be the 8th inning. But things such as backwardation in the gold market, where the spot price is higher than the future paper prices, that strongly suggests the hoarding of gold, and that is certainly one thing that would indicate we are close to the end. We have also seen the negative lease rates on gold.
So, we are late in the game but we are not quite there yet. The big winner here is China, and to a lesser extent Russia and the BRIC’s countries. These are the players, in the end game, that are accumulating gold very rapidly which is being drained from Western central bank vaults. This means the loser in this game is the West.
The West is losing its inventories of gold, which had been accumulated over a considerable period of time. If those inventories run dry, you are going to see a dramatic reversal of the trends that are currently in play. This is when the physical market will dictate to the paper market what the price will be.
One of the major catalysts is the fact that China is going to be backing, probably sometime early next year, its own physical spot gold market. They will be honoring futures and forward contracts, but they will be fully backed by physical gold. When that kicks into play, assuming China does what I would expect, this will require the global market to come to China.
China is already the most important gold buyer in the world, so at that point the world price will be established by the Chinese, and the West and the LBMA will become increasingly irrelevant in terms of the gold market. As that scenario unfolds, it will be game over for the very highly leveraged fractional reserve, Western style, gold market that exists today.
We will then have true price discovery in gold, which we haven’t had for a considerable period of time, and we will find out what the true value of an ounce of gold is really worth. This will be a historic transition because the reality is that the true price for gold at that point will be much, much higher than what we are seeing today.”
No comments:
Post a Comment